 Today I want to talk about the myth of price gouging. Price gouging is generally defined as charging a very high price or an inordinately high price for an item that previously was being sold for some price that people considered normal. But really price gouging is no different in its operation than pricing on any other market. Price gouging occurs during an emergency. It's usually defined as raising the price above a certain percentage, let's say 10% during the emergency or within 30 days of the emergency. But sellers are able to do this precisely because market conditions have changed. There's been a fall in the supply of the item during the emergency and at the same time an increase by consumers in demand. You have to ask yourselves the following question. If sellers suddenly have become greedy, why is it that they have become greedy overnight? Why didn't they try to charge the higher price the day before? Well, they would have all liked to have charged the higher price the day before, but the market conditions were such that they were unable to. So what they did simply was when the emergency hit and market conditions changed, they priced according to those market conditions. And it's also important to consider that in fact it's not the seller himself ultimately that is increasing the price, but other consumers. So if you have to pay a higher price for a flashlight or a generator during some emergency, the reason is that other people have increased their needs for that good and have sought to purchase that good at higher prices. And we're willing to pay those higher prices. That's precisely why the price itself rose, why the seller was able to raise the price. Let's take the example of Indiana in the wake of these winter storms. During the last half a year or so, the price of pope propane gas, which is used by about 10% of the households in Indiana, rose doubled from 250 per gallon to $5 per gallon. And everyone admits that it would market forces. In fact, the Attorney General of Indiana pointed out that it was market forces that caused this doubling of the price. On the one hand, you had an increase in exports to foreign countries, which diminished the supply and the inventory. And on the other hand, there was an increase in demand by Midwestern farmers who had a particularly wet harvest for their corn and therefore needed more propane to dry the corn. In any case, the Attorney General went on to say after admitting that it was market forces that drove this increase in price, that now that he had emergency powers, he would indeed look into violations of price gouging laws. So here's one example in which the politicians understand the driving force, but yet are still going to prosecute. In New Jersey, something similar happened. It was widely admitted that there were very long lines during Hurricane Sandy. Some lines stretched for over one mile to get gasoline. Some gasoline stations had a close because of lack of power, so it left very few left to service consumers. And these stations naturally raised their price, as they saw the lines lengthening, from around the national average of $3.60 per gallon to around $4 per gallon. Now, the AAA spokeswoman who commented on this situation, said, well, it's okay if they raise it to $3.67 or $3.70, that's understandable in this situation and is justified by market forces. But $4 is outrageous, that's price gouging. No, that's not price gouging. In fact, that is what is justified by the market conditions. That is what causes people to conserve on the amount of gas they buy. That is, they don't top off their gas tanks. They buy less because of the high price and they leave more for others. Or they drive out of the area of emergency, into other areas where the price is lower. Beyond that, of course, there's a supply side effect. In Indiana, they did implement the correct policy. They made it easier for people to transport propane to the propane customers in Indiana. They did that by loosening restrictions on the number of hours transport drivers were willing to drive, were able to drive rather. But on the other hand, at the same time, they, as I said, started to make noises about looking into price gouging. But the point is, the reason why you loosen the restrictions is to encourage supply. To encourage supply from other areas of the country where you don't have emergency conditions, where you don't have a greater scarcity of propane gas, where propane gas has a lower price. So the incentive is to move the gas from the areas where the price is lower to Indiana where the prices are much higher. So to sum up, price gouging makes the very people who it's designed to help worse off. Those are the consumers in the affected areas, in the areas of emergency. They're the ones who now find that others have purchased more than they would have if the price had been permitted to rise on the one hand. And on the other hand, that supply is being suppressed by the fact that prices are kept low in that area. If prices were allowed to rise, there would have been a greater supply to the area and there would have been a natural decline in prices. The way to decrease prices during an emergency is to allow prices to rise, drawing in supplies from areas of plenty to areas where there's a greater scarcity.